CMS clarifies Medical Loss Ratio reporting and rebate requirements

In response to reports that health insurance issuers have been attempting to exclude brokerage and agency fees and commissions from Medical Loss Ratio (MLR) reporting, CMS has issued a questions-and-answers bulletin outlining the very limited circumstances in which such fees can be excluded from reporting. The bulletin also addresses to whom the insurers must pay rebates if the minimum MLR standards are not met.

ACA reporting requirements. Section 2718 of the Patient Protection and Affordable Care Act (ACA) requires that health insurance issuers submit data detailing MLR, which is the proportion of insurance premium revenue that is spent on clinical services and quality improvement. If the percentage does not meet minimum standards, the insurer must issue rebates to enrollees.

Agency and broker fees or commissions. An insurer must report the amount of all earned premium revenue for a MLR reporting year. The regulations require an insurer to report agency and brokerage fees as part of administrative costs because such fees and commissions are usually a condition of receiving coverage and not a separate cost to the policyholder. Therefore, CMS has determined that insurers cannot exclude broker fees or commissions paid in connection with health insurance policies from MLR reporting unless all of the seven conditions detailed in the bulletin are met. The conditions include the following:

    (1) State law where the policy is situated does not consider the agent or broker a representative of the issuer;
    (2) The policyholder can purchase a policy directly from an insurer without working with an agent or broker;
    (3) The policyholder chooses to retain and enter into a contract with the agency or broker;
    (4) The fee or commission is negotiated by the policyholder and paid separately from the premium;
    (5) The insurance issuer does not include agent or broker fees in filings that are submitted to the relevant regulatory agency;
    (6) The policyholder, though not required, pays the commission directly to the agency or broker or chooses to pass the commission or fees through the issuer; and
    (7) The agent or broker is issued a 1099, if required, from the policyholder.

If the agent or broker cannot establish that all seven of the enumerated conditions are present, then all agency and broker fees and commissions must be included in earned premium MLR reporting. CMS will ensure insurer compliance with the MLR reporting requirements through the use of audits.

Recipients of MLR rebates. There is no distinction between an enrollee who paid an entire premium to the issuer and an enrollee who chose to apply the premium tax credit towards the premiums in advance of filing a tax return. Therefore, if a MLR rebate is required, the issuer must provide the rebate to the policyholder.

For more information, visit http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/MLR-Guidance-Earned-Premium-and-APTC-Rebates-20150527.pdf.

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